Half Yearly Report

HAVELOCK EUROPA PLC

("Havelock" or the "Company")

Interim Results

Havelock Europa (HVE.L), the international interior solutions provider, announces its results for the half year to 30 June 2014.

Financial Highlights

· Group revenue at £32.5m (2013: £34.2m) declined as a result of the anticipated falls in education activity and a quieter Financial Services Sector.

· Loss before tax and exceptional costs is similar to 2013 at £2.0m (2013: loss of £2.0m) despite the lower turnover.

· Group net debt at £2.6m has reduced by 45% when compared to June 2013.

Operational Highlights

· Secured a long term framework contract with ISS for Barclays in the Financial Sector.

· Successfully entered Student Accommodation Sector and completed first major projects.

· Successfully delivered first major order to an Australian retailer as part of its three year refurbishment programme. Follow on orders are being manufactured.

· Established a network of sourcing partners in Eastern Europe to complement UK and China operations and increase flexibility and responsiveness to client requirements.

Outlook

· Increasing activity in the Retail Sector with both new and existing customers.

· Building an education order book for 2015 and beyond.

· Plans in place to further grow the Student Accommodation and Healthcare sectors.

· Well positioned to take advantage of opportunities in Asia Pacific with new and existing clients.

· Development of new Enterprise Resource Planning ("ERP") system is in progress and output is expected to enhance customer offering and drive further efficiencies from 2016.

Eric Prescott, Chief Executive Officer of Havelock Europa, said: "The strategy of diversifying our customer base and growing our international division has helped to off-set the expected decline in education revenues in 2014. We continue to focus on improving efficiency and flexibility so that we can quickly respond to customer requirements and market changes which we believe will put the Company in a good position to deliver in the second half."

Enquiries

Shan Shan Willenbrock

Tom Horsman

www.havelockeuropa.com

INTERIM STATEMENT

Our focus continues to be on improving the flexibility and efficiency of the businesses so that we are better able to respond to our clients' needs and deliver a strong financial performance. This focus includes diversifying our customer base within sectors and breaking into new markets, such as Student Accommodation and Healthcare. In this regard, good progress has been made in the first half of the year.

The first half is normally the quieter period of the year and, consistent with prior years, loss making.

FINANCIAL REVIEW

Group revenue for the six months ended 30 June 2014 decreased by 5% to £32.5m (2013: £34.2m). The loss before taxation and exceptional items was £2.0m (2013: loss £2.0m). The loss per share after exceptional items was 4.8p (2013: loss of 4.7p).

Compared with June 2013 net debt has fallen by 45% and this has been achieved by continuing the Company's strategy of focusing on strong working capital management. The increase in Group net debt during the first half of this year to £2.6m (December 2013: £0.3m) was largely due to an increase in manufactured inventory. This inventory is manufactured in the quieter first half of the year for delivery in the second half. A decrease in the net discount rate used to value the pension schemes liabilities has increased the deficit, net of deferred tax, to £2.1m (December 2013: £1.1m).

TRADING REVIEW

Interiors

The anticipated delays to the school building programme have decreased revenues for Interiors by 6% to £29.5m (2013: £31.3m). Despite the reduction in revenue, the loss recorded for the period has reduced to £0.9m (2013: loss of £1.1m) as a result of revenue diversification and production improvements.

In the Financial Sector during the first half we won a major framework contract with ISS for Barclays. This work is similar to that currently being undertaken for Lloyds and TSB and we expect to develop the ISS opportunity further in 2015. Discussions are ongoing with other prospective Financial Sector clients.

In Retail we have developed our offering to our new major UK supermarket customer to cover multiple work streams including the refurbishment of food stores. We have also successfully delivered the first significant order for a major Australian retailer, and additional orders, which form part of their three year refurbishment programme, are in manufacture. We are continuing to invest in our international business across Australasia and have recently appointed a new international Business Development Director, who will be based in China.

Commercial activity within the Educational Sector has been robust and we are building a significant order book for 2015 and beyond. We have successfully entered the student accommodation market, completing our first major projects and securing further orders cementing our presence in this sector.

During the first half we continued to develop our manufacturing, sourcing and delivery capacity with the aim of being more flexible and responsive to our clients' requirements. We have also established a network of sourcing partners in Eastern Europe to complement our China and UK operations, and we have extended the contract with our distribution partner to 2017 at nominal additional cost. Furthermore, we have begun the implementation of our new ERP system and we expect the output from this to further enhance our customer offering and help drive efficiencies from 2016.

Educational Supplies

Total revenues in this segment of £3.2m (2013: £3.5m) have fallen by 9% due to delays on new schools projects. The sector has also been impacted by the Government's decision to give all primary school pupils free school meals as many schools have used their discretionary cash flow to upgrade canteens rather than on educational supplies.

The reduction in volume and a shift in Stage Systems volumes away from, higher margin, core stage product to sound and light project works has seen the first half loss from Educational Supplies increase to £0.2m (2013: loss of £0.1m). In order to address this change in Stage Systems market we are currently working on a proposal designed to significantly reduce the cost base of this business and make it more focussed on the core product. Should the proposal be adopted it is likely to result in exceptional restructuring costs of £0.38m in the second half.

DIVIDENDS

As previously announced, the Board does not propose to pay any dividend in 2014.

BOARD

Grant Findlay resigned from his role of Group Finance Director on 14 May 2014. My fellow Directors and I would like to thank Grant for his contribution to the business over the last nine years and wish him well for the future.

Ciaran Kennedy was appointed Group Finance Director on 23 June 2014. Ciaran has 20 years of financial and operational experience working for publicly quoted companies, together with a record of strong leadership and strategic growth skills. I am delighted that Ciaran has agreed to join the Board of Havelock Europa and look forward to his contribution to the future strategic development of the business.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties are set out in the notes to this statement and remain unchanged from those set out in the Annual Report for 2013.

GOING CONCERN

The current economic conditions create uncertainty over the demand for the Group's products and services. The financial position of the Group, its cash flows and liquidity position are set out in the interim financial statement.

The Group operates under the benefit of revolving credit, term loan and finance lease facilities. The committed revolving credit facility is available until 30 April 2016 and is currently £4.5m. The facility reduces by £0.5m on 31 December 2014, 30 June 2015 and 30 September 2015. The term loan and finance leases support specific capital investments. These amounted to £0.4m at 30 June 2014.

During the six months to 30 June 2014, the conditions of the facilities have been met and the Directors expect to be able to comply with the conditions in the future, based on the most recent forecasts and taking account of mitigating actions that could be taken in any periods where headroom is limited.

The Directors, therefore, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the accounts.

CURRENT TRADING

Whilst the first half has been challenging, I am confident that the work we have undertaken to improve our performance and overall efficiency will lead to a stronger second half of the year. However, achievement of the Company's expectations for the second half of the financial year remain dependent on the finalisation of orders and delivery schedules for the fourth quarter.

Looking forward to 2015, we expect further opportunities to develop in Financial Services as our customers revise their high street offering, an upturn in investment by UK retailers and we remain on course to achieve our objective of having at least 10% of sales from our international division. I am encouraged with the progress we are making in the new sectors of Student Accommodation and Healthcare as well as the strengthening order book in education for 2015 and beyond.

David MacLellan

Chairman

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2014

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 June 2014

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the 6 months ended 30 June 2014

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation

These interim financial statements represent the condensed consolidated financial information of the Company and its subsidiaries (together referred to as "the Group") for the 6 months ended 30 June 2014. They have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Services Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the EU and have been prepared on the historical cost basis except for the assets of the defined benefit pension scheme which are stated at their fair value and the liabilities of the defined benefit pension scheme which are measured by the projected unit credit method.

The preparation of the interim statements requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There has been no change in the estimates and judgements applied in the 2013 Annual Report.

The interim financial statements were approved by the Board of Directors on 25 September 2014. The interim financial statements do not include all of the information and disclosures required for full annual financial statements. They should be read in conjunction with the Annual Report 2013 which is available on request from the Company's registered office or to download from www.havelockeuropa.com.

The financial information contained in this report in respect of the year ended 31 December 2013 has been extracted from the Annual Report 2013 which has been filed with the Registrar of Companies. The auditor's report on these financial statements was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying his report and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The interim statements have been prepared on a going concern basis. The reasons for this are outlined in the Chairman's Statement.

The interim financial statements are unaudited and have not been reviewed by the Company's auditor.

 2. Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group as disclosed in its consolidated financial statements as at and for the year ended 31 December 2013. 

Although the Group has adopted a number of other new interpretations and amendments to existing standards in the period, the application of these has not had any significant impact on the net assets or results of the Group.

3. Segmental reporting

Management information is presented to the main board (the chief operating decision maker) based upon business segments. There has been no change to the operating segments during the period. The reported segments are:

4. Income tax

A credit for current taxation has been included at the effective rate likely to be applied to the result for the full year to 31 December 2014.

A reduction in the rate to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013 and the deferred tax liability/asset has therefore been calculated based on the rate of 20%.

5. Earnings per share

The calculation of basic loss per share for the period ended 30 June 2014 is based on the loss attributable to ordinary shareholders as follows:

The weighted average number of shares used in each calculation is as follows:

Basic earnings per share

Diluted earnings per share

6. Equity dividends

No dividends have been declared or proposed for 2014.

7. Property, plant and equipment

On 30 June 2013, a property at Works Road, Letchworth met the criteria for classification as a non-current asset held for sale under IFRS5 Non-current Assets Held for Sale and Discontinued Operations. The relevant carrying value was reclassified from Property, plant and equipment to Assets classified as held for sale.

 Contracts placed for future capital expenditure not provided in the financial statements amount to £1,249,000 (30 June 2013: £95,000,

31 December 2013: nil). This expenditure will be analysed between Property, Plant and Equipment and Intangible Assets when the related assets are brought into use.

8. Intangible assets

9. Analysis of net cash and financial liabilities

10. Related parties

Transactions with key management personnel

Group key management personnel receive compensation in the form of salaries and short-term benefits, post-employment benefits and share-based payments. Group key management received total compensation of £587,000 for the six months ended 30 June 2014 (six months ended 30 June 2013: £569,000).

11. Pension liabilities

During the period, the pension deficit, net of deferred tax, increased to £2.1 million (December 2013: £1.1 million) mainly as a result of an increase in the value of the scheme's liabilities.

12. Exceptional costs

13. Financial instruments - fair value

The methods and assumptions used in estimating the fair value of financial instruments are described in note 20 of the Annual Report 2013. There have been no changes in the valuation methods during the period.

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:

Group

14. Principal risks and uncertainties

The principal risks and uncertainties facing the Group for the remainder of 2014 are shown below and have not changed from those disclosed in the Annual report for 2013.

The Group's loan facilities contain covenants as to EBITDA, asset cover and cash performance. These covenants are tested quarterly and failure to meet these constitutes an event of default under the facility agreement, giving the Bank the right to require immediate repayment of all amounts loaned. The Group's financial forecasts show that these covenants can be met. However, any material disruption to operational and financial performance could result in a shortfall against the standard of performance required. The Group addresses this risk by detailed monitoring of financial performance and the expected outcome for each measurement period.

The Group's businesses have a strong seasonal element, with a peak of activity in the middle and second half of the year. This could result in peak output requirements exceeding the available capacity. The Group manages this risk by detailed and regular capacity planning reviews, with additional shifts and early production being planned.

In the current economic climate, there is less certainty for all businesses about future trading. This is particularly true in the retail sector, where customers may change their plans and programmes at short notice. The Group manages this risk by reviewing trading outlook more frequently, including the review of weekly order intake figures.

The Retail Interiors business operates in a highly competitive market and deals with major customers which increasingly employ procurement strategies designed to ensure that all purchases, and not just those of stock items, are acquired at the lowest possible cost. The business is addressing this risk by seeking production cost savings including, where appropriate, procurement from lower cost overseas suppliers.

The Educational Interiors business is involved as a supplier to major construction projects which can be subject to time delays and slippage caused by both commercial and weather-related issues. The business addresses this risk by building allowance for slippage into its production forecasts and budgets.

The Retail and Educational Interiors businesses work as sub-contractors under industry standard written contracts. The risks involved in working under such contracts are controlled by the employment of qualified and knowledgeable contract managers and quantity surveyors.

One of the largest elements of working capital employed by the Group is trade receivables. These are subject to credit risk and, as a consequence, the Group employs credit insurance to cover the risk on most of its commercial debtors. However, in addition to debt owed by the public sector and local government, the Group bears the credit risk on a proportion of receivables where its credit insurers are unwilling to provide cover. At present, credit insurers continue to be prudent with the amount of cover they are willing to provide and consequently the level of uninsured debtors has increased. The Group's procedures require that material uninsured credit limits are approved by the Board. The Group also monitors the credit status of its major customers.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 Eric Prescott Ciaran Kennedy

Chief Executive Finance Director

25 September 2014